Partners in a new economic model

I would love to have accompanied His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice-President and Prime Minister of the UAE and Ruler of Dubai, on his tour of China. Having visited the country many times in the early years of the decade, when the enormous potential of its economy was just becoming obvious to the Western world, I fancied myself as something of a China expert. I even began to learn Putongua (what the Chinese call the language that we call Mandarin) at evening classes in London.

It would have been fascinating to see how things had changed in the most dynamic, fast moving and adaptable economy in the world. It would also have been intriguing to see how UAE representatives interacted with their Chinese counterparts.

When I came to the UAE a couple of years ago, it was partly because I detected the same dynamism and entrepreneurial spirit here as I did in China, and wanted to be part of the media prism through which that exciting economic process was reported and interpreted.

The differences between the two countries and economies are obvious, but worth re-stating. China has a population around the 1.4 billion mark, while the UAE has something like 4.5 million people; China is an ancient political entity, while the UAE is a young country; Chinese culture is based on a mélange of Buddhist, Daoist and communist ideologies, while the UAE is an Islamic country with a liberal tradition of tolerance and respect for other religions and belief systems.

In the economic sphere, there is one clear difference – the UAE’s main economic resource is its access to energy products in the form of oil and gas, which have been the foundation of the UAE’s wealth and the fuel for its growth. China has some oil, but it is a net importer of energy products. (It is catching up in the extraction of other commodities such as gold and metals.)

But uniting the two, I believe, is an underlying belief in a form of economic organisation that is quickly becoming the model for the 21st century. In China, I identified it as “totalitarian capitalism”, and I think the same descriptor holds for the UAE, with some qualifications. Let me explain.

Both China and UAE are avowedly capitalist. Since the early 1990s, when the Chinese leader Deng Xiao Ping began to dismantle the stifling and out-moded legacy of Mao Zhe Dong’s oppressive communism, China has adopted all the trappings of a modern, industrialised, high technology driven entrepreneurial economy. The great metropolitan centres of Beijing and Shanghai are as alive and vibrant as any Western city such as New York or London, and private ownership in business approved and encouraged as the dynamo of economic growth.

Nonetheless, the Chinese authorities – still under the rigid control of the Communist Party – are determined to retain overall direction and command of the economic process. That is the “totalitarian” element. When in the early 1990s the ruling Communist leaders of Shanghai, the great trading centre of the Pacific coast, decided to make their city a modern financial and manufacturing centre, they simply ordered it to happen. No obstacles like planning applications or local objections were allowed to impede the creation of the stunning Pudong district that is the centre of the new Shanghai.

In the UAE, a similar process was initiated by the founding fathers of the country after 1973. (This does not imply a negative connotation to the word “totalitarian”, by the way – it merely describes a system of economic organisation where central command and control of development is the norm. France has something similar but calls it dirigisme.) The great infrastructure projects of Dubai and Abu Dhabi were launched with a clear vision of where the UAE should be in the years to come. Both the UAE and China are believers in the value of clear “strategic plans” that set out economic and financial targets years hence.

What emerged clearly from coverage of the UAE visit was that both countries see this system as a natural and beneficial one, and therefore agree that they are natural trading partners for each other. There were agreements in principle in major industrial sectors such as property and tourism, and also on knowledge-based elements like science, technology and research.

But I think the major fruits of the visit are still to come. Expect to see a lot more deals and bilateral agreements being announced in the weeks to come.

The motor of the relationship will continue to be the same, however: China wants access to energy sources, while the UAE wants to guarantee the supply of manufactured goods the Chinese can turn out more cheaply and more efficiently than anywhere else in the world. It can also supply labour to drive the UAE infrastructure expansion.

There is one area in particular where the interests of the two countries virtually overlap, and I am sure this featured high on the agenda: financial services. The Chinese authorities, having inherited an already leading global centre in Hong Kong, want to create other world financial centres in Shanghai and Shenzen, and have actively encouraged the creation of a share-owning culture among the country’s money-wise population. (They have not done especially well in the past six months, as indices have fallen round the world, but the Chinese are in it for the long term.)

The UAE has done something similar, of course, with two markets in Dubai and one in Abu Dhabi. But the mathematics just do not add up. China thinks three stockmarkets are sufficient for 1.4 billion people, the UAE thinks 4.5 million can support the same number. I would like to see the UAE authorities accept the Chinese strategy that stock markets require volume and mass if they are to succeed against the major players of Europe and the US.

There has been a lot of talk about the “new silk road” – the increasingly important trade routes in everything from basic commodities to hi-tech software – and this is undoubtedly a key new trend in the globalised world. But I think the key to understanding the flourishing relationship between China and the UAE is the common belief in a new, and defining economic model – the principle of benign, totalitarian capitalism.